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Have we reached a bear market rally top in the market?




 
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Author Topic: Have we reached a bear market rally top in the market?  (Read 20297 times)
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steve_qix
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« Reply #50 on: August 07, 2009, 08:37:39 PM »

I'm with Tom on this one.  I am a very short term trader (sometimes my trades will last 3 hours), but  *NEVER* overnight.

All it takes is some news, good or bad to completely reverse a trend, or to have a big overnight gap up or down.  Depending on which side of the position you're on (long or short), it could be good - but it could just as easily spell disaster.

Regards,

Steve
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« Reply #51 on: August 07, 2009, 09:04:47 PM »

I am also with T on this.
We are still in a bear market rally. I believe a the US is headed for a double dip recession. The fed has lowered the the prime and fed funds rates to near or ZERO%. Inflation will hit hard and curb spending. 70% of the US GDP is based on consumer spending.
2 coditions have to be met:
stabilization in the housing market
stabilization in employment
Untill then, money market acoounts, and commodities are still the stable place to put money.
The market reacts first to any economic conditions, employment lags.
until employment is lowered to normal levels ( 5% or lower), and foreclosures lower, things are still pretty shakey, invest with caution!
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« Reply #52 on: August 07, 2009, 10:19:18 PM »

I get nervous when we all agree..... Grin   Turning points are usually formed when the majority are one-way and wrong. Or maybe Steve, Mike and Karl are part of the smart minority.... Cool


Back in May at Hosstraders I remember someone axed me about the mkt. I said I was still bearish after this rally. I noticed several people I didn't know nodding in agreement. I was surprised so many people thought that way too and thought that maybe that was a sign the rally wud be bigger and surprise the majority - as usual.  And we were all wrong for a few more months.  Contrary opinion is a powerful indicator, but we need to be mavericks to make it work at the turning points. They say a true bull market climbs a wall of worry and a bear mkt slides down a slope of hope. I've been hearing more hope in the news and from people more than anything else, so maybe she's still a major bear.


I also hear many people say they are in it for the full ride - good or bad. Some losses are so big they have given up and are just hoping for a bailout. That's a bearish sign for lower prices later on.

Anyway, Steve - how is the short term option writing going? In hindsight, writing those fat put premiums since March would have been a gravy train, but took some very big BA's...  :-)    (as usual)

T
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« Reply #53 on: August 07, 2009, 10:30:19 PM »

not being a high roller I must notice the market goes up every time you post gloom and doom.
 
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« Reply #54 on: August 07, 2009, 10:34:50 PM »

not being a high roller I must notice the market goes up every time you post gloom and doom.
 


Good! We have at least one bull that disagrees.  Then it must be time to buy tomorrow, Frank... :-)

Doom and gloom was very popular in March near the lows, whereas right now people want to hear more rosy stuff for a change. It swings back and forth with the market. 

BTW, look back at the older posts and you'll see Eric and I called the bottom a week before the final low in March. It was so lopsided bearish. Though, calling the top of this rally is fooling many.
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« Reply #55 on: August 07, 2009, 11:41:32 PM »


Anyway, Steve - how is the short term option writing going? In hindsight, writing those fat put premiums since March would have been a gravy train, but took some very big BA's...  :-)    (as usual)

T


Hi Tom,

I've been trading ETFs (SPY, in fact) exclusively for quite a while using some unusual indicators.  Always in and out in the same day, and never overnight.

Previously, I was doing a "double option" strategy, with a put and a call spread - in the market at the same time (a short put with a long put at a lower strike price for cover, and a short call with a long call at a higher strike price for cover).

This is a very reasonable strategy if there are not any large movements, which in this market has been just about all the time (placid). 


I know you know about this Tom, but for anyone not familiar with how this works - writing a short call or a short put (selling calls and puts) allows you (the writer/seller of the option) to keep the cost of the option as profit, as long as the option stays "out of the money" (does not reach the strike price of the option).  However, if you don't "cover" the options you sell, you are selling naked options - and everyone knows that is risky.

So, to avoid selling naked options, you also buy "covering" options (at a MUCH lower price than the options you sold), which limits your maximum exposure.

My particular implementation of this strategy is to DAY TRADE (or over a couple of days) the options, and capture the depreciation (options depreciate as their expiration date approaches) of both options.  Furthermore, since you have both a short put and a short call out there, as one goes up in value, the other goes down in value - and in a reasonably stable market, these just about wash.... so you are still getting the depreciation when you buy back both options (at a lower price than that which you sold them). 

Every morning, I would "buy back" my options, with the combined prices of the put and the call being lower than what I sold them for the day before.  The greatest depreciation takes place between the late afternoon and about mid to late morning the next day.   So, late in the afternoon, I would then sell options (usually at modified strike prices, since the market would have been likely to move), and buy them back the next morning, etc. etc. etc.

A twist on the strategy is to use market direction to further improve profitability.  Example: If the market is moving up, buy back the calls (which become more valuable as the underlying goes up - costing you more money as the market goes up), and leave the puts in the market (these decline in value as the underlying moves up), and then buy them back later in the day as they further declined in value.  If things are really moving up - leave the puts out there until the next day... and just sell some new calls.  What you do would depend on the particular conditions at the time, and it not an exact science.  You would do the opposite if the market is moving lower - buy back the puts, and leave the calls out there for a while longer.

The risk in this strategy is large market movement (particularly overnight movement).  If the market moves several precent overnight, the changes in the option values do not track (and therefore do not cancel each other out) - the option which is getting closer to being "in the money" (strike price), will move up in value faster than the option which is getting further from being in the money.  There is a rather complicated mathematical model for calculating option values, and the "Delta" (how much an option moves when the underlying security moves in price) changes as the options get closer to, or further from, being in the money.


Anyway, this was a profitable strategy for me, however it requires a lot of position monitoring, technical, and fundamental analysis to keep from stepping on any land mines.  I was also not able to successfully automate the strategy in any meaningful way, so it was a completely manual trading process.

One more thing:  I only traded options on SPY (spider trust ETF for the S & P 500).  These options have high liquidity (generally), and the spread between the bid and ask prices is often .01 (one cent), which is very good for options.  Other options have a .05 or GREATER spread, and you lose the spread, lowering your profits.

Yikes, what an old buzzard post  Wink  Hopefully, someone will find it interesting. 

Don't overlook options - they are excellent trading vehicles if handled properly.  For example, a synthetic long stock (a short put married to a long call) will cost you less than owning the actual underlying stock, but will give you the same dollar movement - so your return is higher per dollar invested - all assuming the stock moves up, which why you invested in the first place.  The risk is the same as owning the stock, but you've tied up less money (you may need to maintain margin to cover the risk in the event of the stock going to 0).  This strategy is often done with LEAPS (Long Term Equity Appreciation Securities), which depreciate very little over several months due to the fact that the expiration date is (often years) away.  Synthetics have their complexities, but I have used them for medium-term investing.
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« Reply #56 on: August 08, 2009, 03:40:25 AM »

Nice post Steve!
It gave me a lot to think about, esp given the current market conditions.
Always enjoy reading Tom's wisdom.

As for me, I'm out of the market entirely, sold all my Ford stock yesterday, it was a fun ride up, but I agree that things have peaked, and this health care debate, more taxes, etc. is only going to drive the national mood lower. Folks are angry, you see it town meetings, on TV, in the blogosphere.

May be time to "Go John Galt." Frankly, at age 45, if I could cash out of my biz and other non-liquid assets, I would do so in a heartbeat, and go kick back on an island. I just don't see much of an upside in the next 10 years, maybe much longer. My state and the feds are broke, and they are soon going to coming looking for someone to pay the bills. Guess who they have in mind...

Time to sit back, squirrel your nuts, may take a closer look at Steve's strategy.

Good time to review the lessons in Atlas Shrugged.
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« Reply #57 on: August 08, 2009, 09:55:11 AM »

Sold a lot of treasuries during the last low point.    Bought a bunch of stable defensive dividend paying stocks.   So far I am $$ ahead along with a great yield based on the stock prices when I got them.    Will try to hold them for a year at least to get low capital gains rate.     Then going to buy more TIPS to cover for the coming inflation.
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« Reply #58 on: August 08, 2009, 10:35:43 AM »

Oh, another good options strategy is to buy deep in the money options (a $60 call option on a $100 security is deep in the money, and should cost you a little over $40).  These options have a delta of 1 (or very close to 1), meaning for every dollar the stock moves, the option moves a dollar (it is a multiplier).

The nice thing with this is - you are paying some fraction of the stock price.  So, for the same dollar movement, your option costs you considerably less than the underlying stock - and you get a much higher ROI.  Since you are long, there are no margin requirements or unusual risk.  The time value of deep in the money options is often a small (or even negligible) part of the option price - particularly in the near months.

Example:  The December 30th 2009 $70 CALL option for SPY ($101.20) costs $31.44.  The option gives you the right (but not the obligation) to buy SPY for $70.00 a share anytime you like, up to the expiration date.  So, you are paying the difference between the option strike price ($70), and the underlying stock price ($101.20), plus a few cents for "time value".  This option has a delta of .932 (the delta is how much the option changes in value when the underlying stock changes in value).

Let's say you buy 1 option contract (a contract is for 100 shares).  That will cost you $3144.  If you bought 100 shares of SPY, it would cost you $10,120.  Over the next few weeks, let's say SPY moves from 101.20 to 103.20 -  a movement of $2.00.

Our options will move  $1.864 per share ($2.00 X the delta of .932) - so for our contract for 100 shares, it moves $186.40.  Assuming we sell our options, we make $186.40 (minus commissions, etc.) or an approximate 6% return on our money.

If we had bought the actual stock, the return over the same period of time would have only been around 2% !!

Anyway, another strategy  Cool
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« Reply #59 on: August 10, 2009, 10:15:07 PM »

Well Bruce now that all the middle class factory jobs pay taxes in china and india guess who is next.
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« Reply #60 on: August 10, 2009, 10:49:35 PM »

"  Well Bruce now that all the middle class factory jobs pay taxes in china and india guess who is next. "

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Steve - WB3HUZ
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« Reply #61 on: August 10, 2009, 11:18:39 PM »

Two data points:

The Treasury Secretary has asked for the debt ceiling to be raised.

The Fed is monetizing the debt.
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W1UJR
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« Reply #62 on: August 11, 2009, 03:41:56 AM »

Well Bruce now that all the middle class factory jobs pay taxes in china and india guess who is next.

You've got me there Frank, but I think you're going to suggest that the white collar positions are next in line?

Don't misunderstand, those "middle class factory jobs" are critical to the survival of our nation, both from a cultural and strategic standpoint. First, wealth is not created by consumption, or spending, but rather by making things. Problem is, the powers that be have allowed aforementioned jobs to migrate overseas or south of the border, to the great determent of the heartland of this nation. We need "middle class factory jobs" every bit as much as we need high tech positions. By allowing manufacturing to go overseas, or south of the border, has simply served to weaken our nation. Treasonous behavior for certain, but all too often celebrated in the name of efficiency.
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« Reply #63 on: August 11, 2009, 06:03:57 AM »

<begin>

move piece parts manufacturing overseas

move assembly overseas

move engineering overseas

move middle management overseas

move corporate HQ to a tax friendly nation overseas

<done>





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Steve - WB3HUZ
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« Reply #64 on: August 11, 2009, 09:19:23 AM »

Quote
By allowing manufacturing to go overseas, or south of the border, has simply served to weaken our nation.

This is called freedom. To use the power of the government to prevent it would be treasonous.
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Art
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« Reply #65 on: August 11, 2009, 10:07:55 AM »

<begin>

(due to entitlement and tax structure (eg. providing services and redistribution of wealth to those who haven't earned them))

create bloated governmental structure and tax to support same in addition to previous line

give the appearance of generosity, caring, and public service to justify previous line

achieve subject (er. citizen) dependency

move piece parts manufacturing out of California

move assembly out of California

move engineering out of California

move middle management out of California

move corporate HQ to a tax friendly state

<90% complete>

<loop - replace California - many states>

<60% (est) complete>

<loop - replace many states - USA : state - country>

<inproc>

disestablish manufacturing as a major portion of the economic base in USA

<inproc>

<branch depending on leadership, vision, and common sense>

destroy USA way of life and perhaps establish relatively weak agrarian society, possibly centralized in northern California, Oregon, and Hawaii

learn Chinese

apply Chavez/Ortega 2016 "Change We Will Let You Live With" presidential sticker on your market cart (were they actually born in the US?. . . .{future update} supreme court strikes down challenge 6:3 citing previous administration.)

provide the opportunity to agree with ruling administration as the example of bipartisan cooperation and democratic process in action

<else>

remove and replace all (yes even the idiots who claim to have not read laws that they voted for) sitting members of US government. (note this is not party specific) (I'm thinking this is 80% deserved and 20% collateral damage)

utilize locally occurring energy source (ref natural gas) for motor vehicles and electricity generation (ref "My CNG Expedition is cleaner and greener than your Prius" bumper sticker)

develop and utilize locally manufactured alternative sources of energy (wind, geothermal) made by US manufacturers (eg GE, Raser Technologies)

Achieve 25% of non vehicle electricity supply from wind (eg Denmark) and geothermal (eg Norway) in five years. (at 5% per year, not end loaded)

employ in decentralized grid development and construction

{Congressional response expected before R&R complete, Huh??? Can we tax it? How can we control it?}

employ in CNG acquisition and distribution

employ in energy R&D in oil, uranium, natural gas, coal (steel production)

employ in additional mining

employ in manufacture of CNG vehicles and retrofits (eg. Utah)

employ in building of CNG fueling facilities

employ in additional drilling for oil

employ in additional refining

employ in nuclear (or nuculer if you prefer) electricity production

export 90% oil (eg. Europe)

export 90% gas (eg. Iran)

replicate Canadian Amateur Radio power limit process and legislation

enjoy the prosperity and benefits of using what you have and having what others need

<begin again>

Somewhere along the way between else and begin again the stock market hit S&P 2000


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WA1GFZ
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« Reply #66 on: August 11, 2009, 12:57:20 PM »

I would think the role of government to protect the us which includes our way of life. Traitors in control .
Bruce i agree with you.
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« Reply #67 on: August 11, 2009, 03:21:26 PM »

I wonder if this is OK to Say ??   ...

Seems to me that the largest interests get the laws written in their favor,  with little or NO consideration of the effects on the people.  It makes no difference what political party the legislator belongs to.  The corporate interests contribute most of the money for the campaigns,  and this provides special access.

I had thought that it might be possible for the populace to buy back our lawmakers by a concerted national campaign of $$ raising,  but someone pointed out to me,  that the large interests also provide employment opportunities for the retired lawmakers and their retired staff members,  and this is something that the citizens could not directly provide,  and after all,  the laws are written by those elected,  not the citizens.

This might seem political,  but,  I am not saying that either major party is better or worse,  both are the same.   The Supreme court has said that corporate contributions are free speech.

Personally,  I llike one person,  one vote.  Each lobbiest counting for ONE vote -- just a person llike all of the rest of us.  JMHO.   It is little wonder that the middle class has seem incomes stagnate.   Our manufacturing base has been mostly exported.   ... and so on ..
   Vic   K6IC   monitoring ...
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Steve - WB3HUZ
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« Reply #68 on: August 11, 2009, 04:04:14 PM »

The role of the government is to follow the Constitution. That's it and no more. Protect our way of life (whatever that might be) is not found in the Constitution.




I would think the role of government to protect the us which includes our way of life. Traitors in control .
Bruce i agree with you.
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Bill, KD0HG
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« Reply #69 on: August 11, 2009, 04:35:34 PM »

Ah, no one wanted the jobs we exported overseas, anyway.
Except for those who weren't educated, bright or motivated enough to do anything else.

http://www.theonion.com/content/video/obama_promises_to_stop_americas
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ka3zlr
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« Reply #70 on: August 11, 2009, 04:36:27 PM »

I personally don't think Vics opinion is a problem, although a little off topic But a Good Opinion none the less. I always felt everyone's opinion laid out in good format is worthy of thought. I Like Steve an others do feel the same about the Gov, an I've always held the opinion that if your Business is Failing due to your own mismanagement OR very careful Heisting of the mechanism of your business which in turn causes collapse it should not be the responsibility of the citizens of this great country to bail you out I'm sorry what can and will happen is your business once again Nobody Ran To Pittsburgh When the Steel Mills Fell and the Union Pensions Collapsed here.....an that's my opinion...

I Like Steve's and JJ"s Analogies alot. Smiley

73
Jack.
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« Reply #71 on: August 11, 2009, 08:04:34 PM »

I guess I mean this, on a purely philosophical level...NOT a  D or R political level.

In general, should American government support and even pay for the only sh!tty jobs that the dumb, uneducated or unmotivated can do? What is the alternative? There were alternatives for those folks in the past, not likely in the future. Would failure to do so de-stabilize society?

Granted, there is a difference...We export decent jobs like computer programming, but also jobs like assembling Vego-Matics or Bic lighters on an assembly line. Or dealing with credit card customers at a large bank.

This question has been bugging me for some time.
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Steve - WB3HUZ
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« Reply #72 on: August 11, 2009, 08:43:05 PM »

We should have exported these people. Problem solved.   Cheesy

Quote
Except for those who weren't educated, bright or motivated enough to do anything else.

I guess I mean this, on a purely philosophical level...NOT a  D or R political level.

In general, should American government support and even pay for the only sh!tty jobs that the dumb, uneducated or unmotivated can do? What is the alternative? There were alternatives for those folks in the past, not likely in the future. Would failure to do so de-stabilize society?

Granted, there is a difference...We export decent jobs like computer programming, but also jobs like assembling Vego-Matics or Bic lighters on an assembly line. Or dealing with credit card customers at a large bank.

This question has been bugging me for some time.
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ka3zlr
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« Reply #73 on: August 11, 2009, 09:38:01 PM »

Back on topic.

The thing is Bill is Confidence...there's been alot of big moves made in this global market, it is global now and moving into those terms is hard an I'm not just talking about the markets, All the big three are doing Very well in their overseas investments, BUT in America we have a Problem...Imagine that...

It's going to take Pure Entrepreneurship build better confidence in our markets by continuing the things that Steve an JJ an few others myself too at one time till my little interruption in life here that invest try to build our portfolio's up to sum usefulness for our latter years...

An it's going to be a rough road to hoe because now it's in our hands to do...no more somebody thinking for you even though in some areas it looks like Socialism is creeping it's crummy face in the mix...Please keep it out of the markets....I feel Now that the Representatives that speak for us has taken on the Business Mix they have no choice BUT to see it through and my feelings are through the Fall is going to be a good period.  Smiley

73
Jack.


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« Reply #74 on: August 11, 2009, 10:20:19 PM »

OK Steve how about this.
You would think the blood sucking  beltway morons would be interested in maintaining their tax revenue by making sure the tax payers had an income to tax.
closed loop system is more stable
 
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